Just bribe the country to do the right thing

[jducoeur]

One of the problems facing the climate-change debate has been the current political shibboleths, and specifically the anti-tax one. Every sensible economist is clear that the *right* way to deal with it is a flat carbon tax: it would address the problem head-on, would probably be least likely to distort markets in unfortunate ways, and would likely be pretty effective. But of course, anything called a "tax" gets peoples' backs up, so we instead wind up with the Democratic leadership creating a classic muddle, in the form of the wildly overcomplex cap-and-trade model. (Which is *probably* better than nothing, but I honestly can't say that with complete confidence.)

So I'm intrigued to read (in last week's Economist) about Maria Cantwell's "cap-and-dividend" proposal. From the description given there (and I need to learn more about the details), it sounds delightfully sensible. Basically, the notion is that any carbon cap will drive up prices: indeed, that's the point of any sensible proposal. So fine: auction off limited permits for all carbon-based fuels, and then bribe everybody with the proceeds. Seriously: take the money from the auctions, and distribute it to the populace. Their back-of-the-napkin kickback calculation is $1000 for a family of four.

It's not perfect, mind -- a carbon-tax system would still be simpler than a cap-based one -- but it's still far simpler than cap-and-trade. If the auction is mandatory and universal, it's likely to succeed in the goal of raising prices and thereby reducing carbon output. And the bribe (which is effectively a progressive redistributive tax, but a very well-disguised one) could be *very* popular if it was marketed properly.

I confess that I'm seesawing between being appalled at the concept, and admiring its elegance. The citizens'-responsibility puritan in me is vaguely unhappy at the notion of bribing the citizens to get them to agree to a system that will help everyone. But the economist in me just loves the way it aligns incentives, and the armchair political quarterback admires the simplicity of the message...

Comments

[doubleplus.livejournal.com]

Heck, I've often said that if I were president and we needed more revenue, I'd raise taxes and raise withholding more, and when the refund checks came out, 90% of people would think they'd gotten a tax cut. While I wish we could have a rational discussion that would lead to people wanting to do the right thing, even if it causes them some pain in the short run, the past year has convinced me even more that ain't gonna happen. In the absence of that, I'm all in favor of anything that will make people want to do the right thing, no matter how underhanded it may seem on the surface.

Think of it as psychological economics. If the purpose of applied economics is to align financial incentives, the purpose of psychological economics is to align psychological incentives. Especially with long-term problems that our brains aren't evolved to respond to, "tricking" people into overcoming our natural mental tendencies and doing the right thing is probably the only way it's going to happen.